TAB stalker could go to $2.5bn, says broker

A leading broking analyst has estimated that UNiTAB could afford to bid as much as $2.5 billion for TAB if the Queensland-based wagering group was forced into a bidding war with Tabcorp.

This comes as the NSW Opposition said it would support the Government's proposal to change legislation to allow TAB to merge with either UNiTAB or Tabcorp.

"The Opposition will be supporting the legislation as proposed," the Opposition's gaming spokesman, George Souris, said. "The resulting totalisator pool would provide a better result for the racing industry in particular."

The Government plans to remove the 10 per cent limit on shareholdings in TAB and scrap cross-ownership rules preventing a company holding both a wagering licence and the Star City casino, which is owned by Tabcorp.

Goldman Sachs JBWere analyst Matthew Reynolds said the changes would increase the chances of UNiTAB's launching a counter-bid for TAB.

Mr Reynolds said UNiTAB could afford to pay between $4.40 and $4.75 a share for TAB, if the transaction was earnings per share positive in the first year, the takeover was funded with an even split of debt and equity and between $15 million and $25 million in cost synergies were realised in the first year.

"However, we do not believe UNiTAB will rush any counter-offer ahead of a formalised final offer from Tabcorp," Mr Reynolds said.

Tabcorp has made a $2.3 billion bid for TAB, offering shareholders 23 Tabcorp ordinary shares and $162 cash for every 100 TAB ordinary shares they own.

Citigroup Smith Barney said the Senate, the Australian Competition and Consumer Commission and the NSW racing industry would not be "major obstacles" for Tabcorp.

"We believe the TAB board of directors now has little choice but to entertain the idea of a scheme of arrangement with Tabcorp given its demonstrably better offer, compared with that of UNiTAB," the broker said.

Meanwhile, Tabcorp general manager, wagering, Michael Piggott, said the company would attempt to form a joint partnership with NSW Racing to run TAB if its bid succeeded. Mr Piggot said experience had shown it was better for the racing industry if the TAB operator owned Sky Channel, rather than an independent group.

"Our primary objective to Sky Channel will be to use it to grow wagering," Mr Piggott said, adding that this would benefit the industry.